Walmart's 'Project Impact' Redesign Takes Toll on Sales

BATAVIA, Ohio (AdAge.com) -- Walmart is doling out hundreds of millions of dollars for "Project Impact," an ambitious five-year push to de-clutter its stores to make them more shopper-friendly. But having less merchandise on display has put a serious crimp in sales for some categories and dinged suppliers. And that's got Bentonville buzzing that the retail titan might just put the program on hold as a result.

"They solved half of the problem, which was un-cluttering the stores," said a person familiar with Walmart. "That leaves them with the other half of the problem: how to make up for the lost sales" from removing millions of square feet of prime merchandising space.

The conundrum of lost sales is real, but the "solution" to put the program on hiatus is being dismissed by some as wishful thinking on the part of suppliers. Either way, it's sure to be a hot topic when Walmart meets with investors and analysts in the retailer's hometown this week.

Walmart executives have described the Impact store remodels as a five-year plan for its 2,600-plus supercenters (out of more than 4,200 total stores), projecting conversion of 500 to 600 stores this fiscal year, which ends Jan. 31.

The revamps are extensive and run millions of dollars per store, including updated signage, new layouts with wide-open aisles, bigger and more prominent space for strategically important categories such as electronics and baby care, lower fixtures that allow for better visibility and an all-around brighter appearance.

Still upbeat
But the process also removes those pallet-sized merchandising displays scattered throughout Walmart, stuffed with everything from $5 DVDs to health and beauty aids. And that extra elbow room for the Walmart shopper, has extracted a stiff price in merchandising space for categories like health and beauty, which derive about a third of their sales from Walmart. In fact, some industry watchers credit a combination of lost Walmart display space, along with more aggressive private-label merchandising by the chain, in part for a substantial slowdown in U.S. sales at $64 billion Johnson & Johnson (J&J declined to comment).

Mike Duke Credit: Wal-Mart
Walmart declined to comment beyond pointing out that its executives have been unremittingly upbeat about the results of Project Impact to date. In fact, CEO Mike Duke gave the stores a glowing review at a Sept. 10 Goldman Sachs investor conference. "You might not see the amount of product in the aisles [as before the remodels]," he said. "That's part of the strategy. And the customers love it."

The Impact stores look a lot like Target stores, which may be no accident, since the initiative has been led largely by Chief Merchandising Officer John Fleming, a Target veteran and former Walmart CMO.

The trouble is, Walmart has always enjoyed considerably better sales per square foot than Target. And part of the reason, some suppliers believe, has been all those merchandising displays that clutter the aisles but also prompt impulse purchases.

Impact stores, along with other elements of the project, have been championed by an increasingly powerful marketing department, but have rankled some in the retailer's merchandising ranks, whose compensation is based on sales growth. Walmart merchandising executives have been the ultimate source of some of the reports regarding the impact stores being put on hold.

Rolling out
They, along with suppliers who've been similarly dinged by the retailer's strategy shifts, make up a powerful reservoir of wishful thinking. Some executives who seemingly should know if Walmart were halting expansion of its highly touted Impact Stores were unaware of any such move, and some were downright skeptical.

One said the impact stores are "still rolling out full steam" though acknowledged the "pendulum perhaps swung a bit too far, but they will fine tune." The real threat, he said, is to brands that are "too promotion- dependent."

Leon Nicholas, director-retail insight at WPP Group's Management Ventures, has likewise heard the chatter regarding a suspension of the Impact stores, but he takes it with a grain of salt. He recalls a recent panel he attended in Bentonville during which "there was more of a hope in the air [among suppliers] that surely this can't be coming to fruition. 'We've just lost 30% of our [stockkeeping units]. We've just lost
all of our promotion opportunities. ... And I'm wondering in some cases, in some categories, if they have said they cut a little too far."

But he said a current remodel just down the street from him in Massachusetts still is doing away with almost all the in-aisle displays. "So there is absolutely no indication," he said, that [the Impact stores] are being put on hold."

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Jack Neff

Jack Neff, editor at large, covers household and personal-care marketers, Walmart and market research. He's based near Cincinnati and has previously written for the Atlanta Journal Constitution, Bloomberg, and trade publications covering the food, woodworking and graphic design industries and worked in corporate communications for the E.W. Scripps Co.